The development of every economy depends on a strong and thriving banking sector, and Indian banks have been instrumental in the expansion of the nation's many industries(Ahmed, 2021). The condition of NPAs in the Indian banking sector is quite concerning. Public sector banks are experiencing greater NPAs compared to private and foreign banks. (Bhasin, 2017). Ownership does, in fact, have a substantial impact on SCB NPAs; public sector banks are more likely than private sector banks to have larger NPAs (Mishra et al., 2019). Non- priority sector shows higher growth in NPAs as compared to priority sector among all the banks (Gaur & Mohapatra, 2019). Growing non-performing assets (NPAs) and declining NPA recovery result in inadequate capital recycling, which has a direct impact on bank’s lending choices.Since NPAs don't provide any net interest income, Prasad & Veena (2011) claimed that NPAs have a negative effect on As a consequence, the earnings of banks decrease, leading to reduced funds for recycling. It did not leave any chance for the proper funding of significant projects by bankers. The delinquency caused by NPAs affects banks, but it is a need-based problem which basically sets back the whole economy. Main reasons behind this increase in stressed assets have been determined to be aggressive lending tactics, willful default, loan fraud, and in some cases, corruption (Moli, 2017;Nag, 2015). The government created a thorough 4 R's strategy, which includes recapitalizing PSBs, resolving and recovering value from stressed accounts, transparently acknowledging NPAs, and reforming PSBs and the financial ecosystem, in order to create a reliable and moral system (Mohanty & Acharya, 2019; Singh, 2016). Maheswari and Reddy (2022) in their study concluded that the primary cause of rising NPAs include funding to non- non-priority sector and that rising NPAs levels affect both the profitability of the banks plus the various projects involved in the development of the country.On the analysis of lending pattern service sector lending has a negative relationship with NPAs, whereas personal ,industrial, and agricultural lending has a positive relationship with NPAs (Desai, 2017). Gupta et al. (2020) found management turmoil as a main factor in the rise of NPAs and downfall of Yes Bank. Moreover, Mukherjee (2019) evaluated in his research that strict lending standards could potentially exacerbate the recession, hinder growth rates, and lead to an increased number of NPAs. Mittal and Suneja (2017) concluded from their research that lack of proper credit appraisal mechanism, untrained staff, inefficient lending practices, mismanagement of allocated funds as the causes for the rising NPAs. Poor habits in managing the credit resulted in intentional default and contributed to the increase in non-performing assets (NPAs) (Kashyap et al., 2020).

In short, the banking sector in India was revolutionized after birth by globalization and liberalization in 1991.The changes included prudential standards, reserve reduction, and interest rate control, among other things (Shaardha & Jain, 2016). The insolvency regime needs uniform legislation in process. The resolution of the non-performing asset (NPA) issue requires an appropriate credit evaluation and risk management system (Singh, 2013). This necessity led to the creation of IBC 2016. Implementation led to harmonization of the legal framework already in existence, as two laws were repealed and six laws amended. The IBBI was established to keep an oversight on the functioning of insolvency intermediaries (Abhirami & Rahul, 2022). Individuals, businesses, and partnership entities are all covered by the IBC. Insolvency practitioners, data repositories, adjudicating bodies, and the Insolvency and Bankruptcy Board of India form the four key components of the IBC 2016. (Alamelumangai & Sudha, 2019).

The advent of the Code appeared to affect lenders, banks and financial houses, companies, and others, affording them the opportunity to act as resolution experts. The objectives of bankruptcy legislation are to give investors an easier way out, expedite the winding up of insolvent firms, and provide a rescue option for financially troubled entities (Anant & Mishra, 2019).

• Non- Performing Asset

One of the most profound and widespread concerns of the NPA is that of any country. On the other hand, the size of this issue is unquestionably rather significant for developing countries such as India. Without a comprehensive overhaul of the banking and financial sector in India strategically in place, the Indian government's economic reforms to meet the speed of the global economic challenge would not be able to be accomplished. The problem of NPAs is continuously expanding, which is putting the existence of banks in jeopardy, reducing the profitability of banks, and having an effect on the economy as a whole. When a loan or lease fails not meet the specified principal amount and the interest amount payments, this type of asset is referred to as a NPA. There are two kinds of NPA, which include business loans that have been over ninety days past due, and consumer loans more than one hundred eighty days past due.

• Insolvency and Bankruptcy Code (IBC) 2016

It is currently the case that India has a number of laws that overlap with one another and deal with the financial failure and insolvency of both individuals and businesses. Besides overloading the Indian credit system without adding any value, the present legislative and institutional structure leaves lenders with no support in facilitating quick recovery or restructuring of defaulted assets. The framework made an effort to incorporate a time-bound and methodical resolution of insolvencies in order to maximise the value for all stakeholders, as well as to balance the knowledge asymmetry, in addition to protecting the interests of all stakeholders.

The year 2000 witnessed an increased number of NPAs. Banks' lending was indiscriminate during the period 2008-14, which was attributed to a very high percentage of non-performing assets. RBI Asset Quality Reviews threw light upon this, and with that, the government took rapid action. It was introduced in the Lok Sabha shortly after that and was sent to a Joint Committee of Parliament. The committee that was formed submitted its report in 2015, which suggested the formation of IBC. Indian Business Council (IBC) was approved by both the houses of the Parliament on May 5, 2016, and it got assent from the President of India at the end of May, 2016.

• Objectives of the study
• To carry out a thorough review of the literature on managing NPAs in the Indian banking industry.
• To assess how well IBC 2016 is managing non-performing assets.

Selection of Literature

This review study evaluates the impact of IBC 2016 on NPAs in Indian banks, based upon an elaborate literature search. The authors scrutinized peer-reviewed journal articles, conference papers, and credible reports published from 2016 to 2023. The keywords used in the search strategy included the electronic databases of "Insolvency and Bankruptcy Code 2016," "NPAs in Indian banks," "resolution mechanisms," and "effectiveness." More comprehensive research meeting the inclusion criteria was also sought by manual searches of relevant journals and through citation tracking of relevant works.

Data Extraction and Synthesis

Data extraction includes gathering relevant information from a group of studies, which includes: titles, authors, publishers, and publication years of the specific studies. The aim of each research, the research method that was used, the primary findings about the efficiency of IBC 2016 in resolving NPAs, and the suggestions were organised and retrieved in a methodical manner. The data that were extracted were tabulated in order to make comparative analysis between the various research easier. In order to uncover common themes and variances in the function of IBC 2016 across various sectors and types of NPAs in the Indian banking system, the synthesis that was performed involves organising the findings in a thematic manner.

Gap Analysis

It was determined through a gap analysis whether sections of the study that had been done in the past had limits or did not provide thorough coverage. A summary of the gaps that were found in previous studies is included in Table 3, which also shows the contributions that this review work has made. As an illustration, past research frequently concentrated solely on NPAs without doing a comprehensive analysis of the influence that IBC had on the whole. This review, on the other hand, provides a comprehensive analysis by incorporating factual data, opinions from across the industry, advanced statistical methodologies, and comparisons with alternative recovery mechanisms. When it comes to actual evidence on the temporal impact of IBC, its effectiveness during economic downturns such as the COVID-19 pandemic, and legislative issues that influence NPA resolution tactics, the analysis fills in the gaps.

Table 1: Brief Reviews on the impact of IBC 2016 on NPAs Management

No doubt that IBC is found to be a great victory for NPA management. It also expedited that the pressure on the government to give capital to the banks to enable them to stand on their own two feet would significantly decrease if more and more loans were recovered under IBC (Shekhawat, 2019). The banking sector, the Indian economy, and the insolvency procedure will all reap the benefits of the law. Compared to insolvency statutes in other nations, the IBC code has been applied so successfully, according to the Crisil 2019 study. (Ahmed, 2021). In comparison to previous systems like the Debt Recovery Tribunal, the SARFAESI Act, and Lok Adalat, the IBC has effectively addressed a significant number of distressed assets, achieving higher recovery rates since its introduction in 2016. The average recovery rates for SARFAESI Act, 2002, DRT, and Lok Adalat from fiscal years 2018 to 2022 were 21%, 5%, and 4%, respectively, whereas the recovery rate under IBC stands at 32%. Importantly, it has established a strong deterrent effect, leading to the resolution of major bad-loan cases before they reach the IBC pathways.

As stated by Sushant Sarode, Director at CRISIL Ratings Ltd, the effectiveness of the IBC can be enhanced through the implementation of the CDE Approach, which entails Capacity Augmentation, Digitalisation, and the Expansion of Pre-pack resolutions for larger corporations.

Effectiveness of the IBC 2016 in the Resolution of NPAs

As a consequence of the significant rise in non-performing assets (NPAs) over the past few years, concerns about asset quality within the Indian banking sector have reached unprecedented levels. Several factors can be linked to the anticipated growth in non-performing assets (NPAs) in the coming years, including the rapid increase in credit from 2005 to 2012, inadequacies in credit evaluation and monitoring practices, and instances of intentional defaults that occurred during that time. Total outstanding debt reached a high point in the 2017–2018 fiscal year and has subsequently been declining. Public sector banks in India tend to have higher levels of non-performing loans (NPAs) due to more lenient lending practices and terms. In contrast, private sector banks maintain a lower proportion of NPAs, partly because their stricter repayment policies result in fewer loan applications. Since the global financial crisis of 2010, foreign banks in India have shifted their focus from retail lending to institutional business. Their lending rates have been affected by this change, which has led to a decline in non-performing assets, and NPAs have gone down. Although it takes time for small finance institutions to acquire trust, they have brought new life to the lending market since they began operations in 2018. The trend of gross nonperforming assets (NPAs) and the ratio of gross NPAs to gross loans in the Indian banking sector are shown in Table 2.

Table 2: The ratio of gross advances to gross non-performing assets in the Indian banking sector

The table below presents the proportion of gross non-performing assets (NPAs) to gross loans in the Indian banking sector from 2012 to 2023. This data highlights key trends and fluctuations across different types of banks. Notably, after peaking at 12.4% in 2020, the gross NPA ratio improved, declining to 8.5% by 2023. From 2012 to 2020, gross non-performing assets increased from 869 billion to 10,418.81 billion, and then they decreased to 8,399.73 billion in 2023. It was SCBs and PSBs that faced the worst nonperforming asset crisis. The NPA ratios for PSBs climbed to 15.8% in 2020, highlighting their vulnerability to economic downturns and inadequate lending practices. In contrast, Private Sector Banks and Foreign Banks maintained considerably lower NPA ratios due to enhanced risk management strategies. Private Sector Banks reached their peak of 6.7% in 2022, whereas Foreign Banks varied but stayed below 6% during the entire period. Starting from 2020, Small Finance Banks exhibited a rise in non-performing assets (NPAs), peaking at 6.6% in 2023, reflecting challenges in their growing operations. The overall trend indicates the severe strain faced by the banking sector between 2017 and 2020, followed by a recovery that began afterward. The implementation of the IBC 2016 is likely associated with this recovery. The law has greatly supported the treatment and resolution of NPAs and emphasizes continuing policy intervention, effective risk management, and good governance to attain and maintain financial stability.

Table 3: Gap Analysis of Prior Studies on the Function of IBC 2016 in Indian Bank NPA Resolution

Table 3 indicates the shortcomings identified in the previous literature and the ways our study has filled in or addressed such gaps. For example, Agarwala and Agarwala (2019) reported average growth rate of NPAs without undertaking an in-depth examination of the impact of IBC on the economy at large. On the other hand, our study presents a comprehensive literature review and tests the effectiveness of IBC in the management of NPAs. Similar studies published by Gupta (2018) and Bajaj et al. (2021) had the same shortfall in lacking empirical data, and they also did not have any scope for temporal analysis. Our study counters that shortfall since it covers empirical data with an in-depth temporal analysis. Our research has expanded the scope of this investigation further by considering sector-wide viewpoints, more elaborate statistical methodologies, comparisons to other forms of recovery processes, and the reflection of the impact that would emanate from differing economic situations, such as the COVID-19 pandemic. Besides being an all-inclusive approach, this helps bypass the shortcomings of previous research. It provides for a comprehensive perspective on the impact IBC has had on the management of non-performing assets in the Indian banking sector.

The tables indicate a number of gaps in the prior research on the influence that IBC has on NPAs. These gaps range from the absence of complete evaluations to the absence of empirical data and sector-wide analysis. Our research fills in these gaps by first giving a comprehensive literature review, then doing an empirical data analysis, and finally offering sector-specific insights regarding the efficiency of IBC. To be more specific, our findings show the fact that non-performing assets (NPAs) reached their highest point in the year 2020, reaching a total of 10,418.81 billion rupees and a Gross NPAs to Gross Advances Ratio of 12.4%. However, by the year 2023, they had decreased to 8,399.73 billion rupees and increased by 8.5%. The fact that this drop occurred shows that the introduction of IBC has played a significant role in managing and mitigating non-performing assets (NPAs), notably for Public Sector Banks (PSBs), who were confronted with the highest ratios during the crisis era. In addition, Figure 1 highlights the association between non-performing assets (NPAs), credit growth, and GDP growth, drawing attention to the negative impact that NPAs have on economic indices. In the future, the implementation of blockchain technology might potentially improve NPA administration, as Deka (2021) suggests, by guaranteeing that transaction records are both visible and safe. Nevertheless, additional efforts are required from the government of India in order to completely incorporate blockchain technology into banking business practices. Furthermore, as Sharma et al. (2019) have emphasised, it is essential for Indian banks to prioritise rigorous credit assessment and borrower credibility in order to achieve lasting improvement in asset quality. Financial stability and the banking sector's resilience against future economic problems require ongoing monitoring and policy adjustments, even though IBC has shown some success in combating non-performing assets (NPAs).

For the purpose of determining the long-term effects of the IBC 2016 on Non-Performing Assets (NPAs) across economic cycles, additional research should concentrate on performing longitudinal studies. It is vital to conduct comparative evaluations between the various banking sectors, investigate the success of recent legislative reforms, and investigate the possibility of integrating blockchain technology for the management of nonperforming assets. For the purpose of enhancing understanding and informing policy in order to strengthen India's banking sector resilience and financial stability, sector-specific studies, examinations of credit assessment practices, international comparisons of insolvency frameworks, and evaluations of the broader economic implications of reduced non-performing assets are critically important.

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